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ACCA Strategic Professional · Advanced Performance Management · Performance and reward

Harrow Components plc pays its production managers a bonus of 10% of salary if monthly output exceeds budget. Managers have started shipping part-finished units and delaying maintenance in the last week of each month to reach the target. Which feature of good reward design has most clearly been breached?

The scheme breaches alignment with long-term value. Because pay depends on one short-term output figure, managers ship incomplete units and defer maintenance to hit it, harming quality and future performance. Controllability and clarity are not the problem, since managers influence output and the rule is simple.

  1. AThe scheme is not controllable by the managers
  2. BThe scheme is not aligned with long-term value creation, so it encourages short-term gaming of the measureCorrect
  3. CThe scheme is not understandable to participants
  4. DThe scheme is too expensive to administer

Explanation

The bonus rewards a single output figure, so managers act dysfunctionally to hit it at the expense of quality and maintenance. This shows poor goal congruence with long-term value. Controllability is not the issue because managers control output, and the scheme is simple to understand.

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